Thorstein Veblen and the Revival of Free Market Capitalism

Published by EH.NET (November 2007)

Janet T. Knoedler, Robert E. Prasch and Dell P. Champlin, editors, Thorstein Veblen and the Revival of Free Market Capitalism. Cheltenham, UK: Edward Elgar, 2007. xxi + 239 pp. $125 (cloth), ISBN: 978-1-84542-540-1.

Reviewed for EH.NET by Warren J. Samuels, Department of Economics, Michigan State University.

Within neoclassical price theory and its applications, a common problem arises. Although the conventional protocol calls for unique determinate optimum equilibrium solutions, a change in assumption or circumstance yields two different such solutions. The problem has to do with which price structure is to be used in making calculations, the pre-change or the post-change structure. That problem is one of a larger genre. Consider, for example, a change from one Smithian stage to the next stage. Which cultural norms, which legal rights, and which moral rules, as between the two stages, are to be used in rendering interpretations and normative judgments? On a more homely level, we observe intergenerational conflict, a conflict that is perhaps sharpest between ?migr? parents and their children, each raised in different cultures. The book under review is noteworthy for its variations on the theme.

The editors are well-known institutionalists. Janet Knoedler is Chair of the Department of Economics at Bucknell University. Robert Prasch is in the Department of Economics at Middlebury College. Dell Champlin is Visiting Professor of Economics at Western Washington University. In the editors’ introduction to the ten contributions comprising this new collection, they argue that “to understand Veblen, it must be appreciated that as a youth he came of age in a time and place influenced by the Populist movement, but, intellectually, he came of age during the Progressive era. As a consequence, his thinking shares elements of both, but cannot be located in either” (p. xiii). Each of the ten chapters raises the problem, directly or indirectly. For that reason alone, the authors are to be seen as breaking new interpretative ground in understanding Veblen ? not as to whether or not he was correct but in understanding the tensions and ambiguities raised by his analysis.

Perhaps the most pregnant essay, apparently the essay most deeply felt by the editors, is that by the political scientist and Veblen scholar Sidney Plotkin. In his view, Veblen distrusted both the Captains of Industry and the legislators, judges and administrators who form the government, all of whom operate on the basis of status emulation centering on wealth. Government is an important institution but its officeholders are much beholden to business. Democracy is thus sabotaged from within, by those seeking hierarchical status and by those seeking power. What is there about government which makes it legitimate? If neither the leaders of business nor those of government pay attention to the masses, except to identify what political language will serve to manipulate them along desired lines, is democracy a fraud?

Anne Mayhew’s opening essay appropriately considers the place of science in a society whose culture encompasses more than science. Relying in part on insights from Joel Mokyr , Mayhew examines the cultural foundations of the relationships between science and technology and the questions which science is unable to answer, questions of a religious and metaphysical nature. What is there about science and metaphysics which lead some people to consider one and not the other legitimate? What is there about biological and cultural factors which lead some people to emphasize one and not the other? She concludes with an even deeper query: “What should or can be shielded from science and what opened to its dispassionate glare remains a question to which Veblen gave no definitive answer” (p. 14). For some people, Veblen is so persuasive they readily overlook his lack of conclusiveness when held at arm’s length.

In a collection in which no chapter is weak, one of the deepest is Robert Prasch’s analysis of the origins and meaning of private property. Property is to be understood in a context of power structure, affirmation and denaturalization of property, status emulation, property as a means of support and participation by the individual, property as predation, the inevitable changes in the institution of property, and so on. Every generation thinks that its social construction of property is both the true one and the one from time immemorial. Given change in the law of property, which law, the old or the new, is to be the basis of interpretation and evaluation?

A similar situation pertains to the corporation and the various forms of capital, outlined by Eric Hake. The evolution of the corporation, capital, markets, asset valuation, credit, securities markets and their sundry combinations, each of which defines the economy for some people, can be unidirectional or multidirectional. The question, which is the interpretive base from which all else is to be viewed, announces the common problem. It is not only the institutions of property and the corporation that have evolved. So too have the cultural incidence of pecuniary institutions and the machine process, their interrelations and the further “financialization” of the economy, as Glen Atkinson puts it. William Waller examines the variety of theories of exchange and of markets, as well as value, from Adam Smith to the present, emphasizing what is missing in the work of Veblen, though not in the work of numerous later disciples of Veblen. When do we follow Veblen and when not?

Atkinson focuses on the evolution of the economy, and Waller identifies what is missing from Veblen. Geoffrey Hodgson takes up four myths of Veblenian institutionalism: (a) that Veblen’s psychology was behaviorist, (b) that Veblen saw individual behavior as being almost entirely explained by culture or institutions, (c) that Veblen upheld a “dichotomy” between institutions and technology, and (d) that the work of Clarence Ayres represents a direct continuation and development of Veblenian precepts (p. 127). All four will be controversial, but especially the latter two.

Each chapter presents lines of reasoning and evidence that lead to a further general question: Veblen developed his theories in the context of his times. What would Veblen say about the new world of business, government, higher education, and religion? It is because the contributors to this volume are aware of the situational specificity of Veblen’s theories that each, so far from merely rehearsing Veblen’s ideas, wonders what “a reassessment and reintegration” (p. 64) will look like.

While the insights of John R. Commons and Malcolm Rutherford are amply and properly brought to bear by several contributors, only one mention of Hyman Minsky is to be found and none of Daniel Bromley or of A. Allan Schmid.

The contributors have two further things in common. Each chapter is rich in detail and, although only Mayhew explicitly elaborates on pragmatism in her account, pretty much all contributors tell stories amenable to pragmatist interpretation.

I am not quite certain as to what lesson the editors intend to convey by juxtaposing “the revival of free market capitalism” to Veblen. I am, however, optimistic that the volume will mark the onset of a new stage in the interpretation and reformulation of Veblen’s institutionalism.

Warren J. Samuels is Professor Emeritus of Economics at Michigan State University. He is currently working on preliminary articles based on his study of the use of the concept of the invisible hand in economics.